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Study hints power rates to stay high

New England's electricity rates, among the highest in the nation, will continue to depend almost entirely on the price of natural gas over the next two decades -- no matter what policies state leaders adopt for conserving energy and approving new kinds of power plants, according to a study being released today. The report, by Independent System Operator New England, which runs the six-state power grid and the region's $10 billion wholesale power market, offers no hope rates will drop significantly unless the price of natural gas plummets. That's an outcome few energy investors are banking on. Since 2000, as New England has grown more dependent on cleaner-burning natural-gas power plants, average homeowners' electric bills in Massachusetts have roughly doubled, along with an equivalent jump in the prices for wholesale natural gas. The ISO's "scenario analysis" examines 52 approaches to meeting demand for electricity through 2025, but takes no position on which are best. They include launching massive conservation efforts, building nuclear generators at existing nuclear plants, and making a huge regional push into cleaner-burning coal plants. Regardless of which scenario is pursued, 90 percent of the time in 2020-2025 the price of gas would determine the price of electricity, the report says.

New England's electricity rates, among the highest in the nation, will continue to depend almost entirely on the price of natural gas over the next two decades -- no matter what policies state leaders adopt for conserving energy and approving new kinds of power plants, according to a study being released today.

The report, by Independent System Operator New England, which runs the six-state power grid and the region's $10 billion wholesale power market, offers no hope rates will drop significantly unless the price of natural gas plummets. That's an outcome few energy investors are banking on.

Since 2000, as New England has grown more dependent on cleaner-burning natural-gas power plants, average homeowners' electric bills in Massachusetts have roughly doubled, along with an equivalent jump in the prices for wholesale natural gas.

The ISO's "scenario analysis" examines 52 approaches to meeting demand for electricity through 2025, but takes no position on which are best. They include launching massive conservation efforts, building nuclear generators at existing nuclear plants, and making a huge regional push into cleaner-burning coal plants.

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New England's electricity rates, among the highest in the nation, will continue to depend almost entirely on the price of natural gas over the next two decades -- no matter what policies state leaders adopt for conserving energy and approving new kinds of power plants, according to a study being released today.

The report, by Independent System Operator New England, which runs the six-state power grid and the region's $10 billion wholesale power market, offers no hope rates will drop significantly unless the price of natural gas plummets. That's an outcome few energy investors are banking on.

Since 2000, as New England has grown more dependent on cleaner-burning natural-gas power plants, average homeowners' electric bills in Massachusetts have roughly doubled, along with an equivalent jump in the prices for wholesale natural gas.

The ISO's "scenario analysis" examines 52 approaches to meeting demand for electricity through 2025, but takes no position on which are best. They include launching massive conservation efforts, building nuclear generators at existing nuclear plants, and making a huge regional push into cleaner-burning coal plants.

Regardless of which scenario is pursued, 90 percent of the time in 2020-2025 the price of gas would determine the price of electricity, the report says.

Government policies intended to curb air pollution, nuclear plant closings, and citizen opposition to wind-power projects, such as Cape Wind in Nantucket Sound, have resulted in increased reliance on natural gas to generate electricity in the region.

Since 1999, about 97 percent of all new generating capacity relies partially or wholly on natural gas, which produces less smog and carbon dioxide than coal or oil does.

Between now and 2025, assuming the historic 1.3 percent average annual increase in demand for electricity continues, New England will need to add 8,000 megawatts of generation capacity or energy-conservation measures, the report forecasts. That would be equivalent to what seven Seabrook, N.H., nuclear plants could produce or what 6 million average-size homes or small businesses would use.

Even if most or all of that increase were met with other technologies, "it's not going to significantly alter our dependency on natural gas," said Gordon van Welie, chief executive of Holyoke-based ISO. "And diversification away from natural gas will have a cost associated with it."

Referring to nuclear and so-called clean-coal plants, wind turbines, and construction of major new transmission lines to bring in hydroelectric and wind power from Canada and upstate New York, van Welie said: "All those options are going to be difficult to site, difficult to build, and expensive."

The report considered a scenario in which New England offsets all of its growth in demand by 2025 through better efficiency and incentives for homeowners and businesses to shift consumption from times of peak demand -- hot summer afternoons or winter evenings -- to late-night or early-morning hours.

Van Welie said the ISO wasn't necessarily agreeing that an all-conservation approach is workable, but was just testing the hypothesis. Yet 2025 electricity prices still turned on the price of natural gas.

Under the deregulated, competitive wholesale electric market New England states adopted in the late 1990s, power plant owners no longer get a capped profit margin for producing electricity. Rather, they submit bids to the ISO to produce power at different hours for different prices. The ISO ranks those bids, from cheapest to most expensive, and each hour orders just enough generators to run to meet electric demand.

Under this system, all generators get paid the price bid by the last, most expensive bidder, the so-called market clearing price.

Natural gas currently fuels about 38 percent of power generated in New England. That compares with 24 percent from oil, 14 percent from nuclear plants, 10 percent from hydroelectric stations or reservoirs, 9 percent from coal, and the rest from other sources, including wind-powered and trash-burning generators.

The bigger significance of New England's dependence on gas is that the way the market is designed, a plant powered by natural gas sets the market price most of the time. That would still be true about 90 percent of the time in 2025 in virtually all scenarios the ISO forecast. The report saw no way that overall electricity prices could be cut more than 13 percent below whatever rate the cost of gas then dictates. And that would require both aggressive energy efficiency measures and a highly efficient fleet of gas-fueled power plants.

"Given the region's lack of indigenous fuel supplies, its dependence on imported fossil fuels, and its tightening environmental policies," the report says, "substantially reducing regional electricity costs will be difficult."

 



Source: http://www.boston.com/busin...

AUG 2 2007
http://www.windaction.org/posts/10410-study-hints-power-rates-to-stay-high
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